For many, the word “budget” is a negative term often compared to a diet in the way that you have to give up things you love. A personal budget is a plan to help you build a solid foundation of financial wellness so you can do and have the things you want without hurting your financial future. At the core of budgeting, there is one common principle—track all of your expenses to see where your money is going.
After tracking your expenses, you may realize that you are spending more than you’re making. Draw a line between your wants and needs. Remember living within your means can keep you from drowning in debt.
Keep it simple
1. Outline your financial goals.
Are you saving to purchase a car or house, pay off debt, or save for a vacation? Be specific on how much you need to save and how long it will take to achieve your overall goal. This should help you plan how much to save monthly. Make sure your goals are achievable.
2. Track Your Income and Spending
The main idea of a budget is help you spend less than you’re bringing in. To get started, list your income and monthly expenses. Keep track of all your expenses, everything from your morning cup of coffee to property taxes to see where the money is going. Remember, expenses like your mortgage or car payment likely won’t change over time, however expenses like your electric bill can vary depending on the time of year.
3. Identify Ways to Save
Develop a wants-and-needs list to help identify where to start trimming your spending. Most financial experts recommend earmarking 40% of your earnings for necessities such as housing and utilities and 10% in an interest-bearing account or a tax-favored 401(K) plan. Look for creative ways to save, for example make coffee at home instead of spending $4 a day; $20 a week, or $80 a month. Remember small savings can add up to a huge surplus.
4. Stick To It
- Review your budget on a regular basis.
- Stay focused on your goals.
- Be sure that the budget accurately reflects your spending and be prepared to make additional adjustments.
A surplus in your monthly budget is right around the corner and puts you one step closer to achieving your overall goal.
Do you have tips for setting and sticking to a personal budget? Let us know in the comment section!